Do not fall prey to one-sided Builder Agreements #indianlaws

May

13

2013

Builders Beware – Small Consumers not to fall prey to one-sided Builder Agreements containing Arbitration Clause – Consumer for a Will still have the jurisdiction to adjudicate remedy provided under the Consumer Protection Act is a special remedy to resolve

Consumer disputes in an expeditious and non-expensive manner and if the small consumers are relegated to the Alternative Dispute Resolution (ADR) mechanism of arbitration, the special remedy so provided shall become illusionary.

In a batch of cases (Revision Petitions and the Original Petitions) following question of law was referred to the larger Bench for consideration and opinion:-

Whether the consumer fora constituted under the Consumer Protection Act, 1986 are bound to refer the dispute raised in the complaint, once an application under section 8 of the Arbitration and Conciliation Act, 1996, is filed by the opposite party (ies) seeking reference of the dispute to an Arbitral Tribunal in terms of valid arbitration agreement, despite the provisions of Section 3 of the Consumer Protection Act, 1986.

Following contentions were raised in support of referring the dispute to an Arbitral Tribunal:

• Section 8 of the Arbitration and Conciliation Act, 1996 is peremptory in nature and it is obligatory on the part of the “judicial authority” to refer the parties for arbitration in terms of the arbitration clause in the agreement as the purpose of Section 8 is to make the arbitration agreement effective.
• The mandate of Section 8 of the Arbitration Act of 1996 comes into operation only after an application under sub-section (1) is made by a party before the “judicial authority” before which an action is brought. There may be cases where despite existence of an arbitration agreement, the parties may get their dispute adjudicated from Consumer Fora or other judicial authorities.
• The reference of the matter to the arbitration is not automatic in case of existence of an arbitration agreement. But once an application under section 8 (1) of the Arbitration Act of 1996 is made by any party, the “judicial authority” has no discretion but to refer the parties to arbitration in view of the use of the word “shall” in the provision.
• The bar of Section 8 of the Arbitration Act if not strictly enforced it would create an anomalous situation wherein if the matter is not referred for arbitration, as there are counter-claims of the Opposite Parties which the Consumer Fora cannot adjudicate and it would lead to two parallel dispute resolutions over the same/similar issue.
• Section 5 of the Arbitration Act of 1996 further confirms the intention of the legislature that the provisions of the Act are intended to have over-riding effect excluding the judicial authorities to intervene in the matters governed by the provisions of the Arbitration Act.
• The effect of Section 8 of the Arbitration Act is not to non-suit the consumer but to relegate him to a remedy which is already agreed upon.
• If Consumer Fora does not refer the matter to the arbitrator in terms of Section 8, it would result in a peculiar situation where there may be contradictory orders from the Consumer Fora and the Arbitrator and if both proceedings are allowed to proceed simultaneously, the arbitral award would be enforceable as a decree of the court in terms of Section 36 of the Arbitration Act of 1996.
• Section 3 of the Consumer Protection Act, 1986 (C.P Act) provides an alternative remedy not in derogation of any provisions of any other law for the time being in force. It does not partially repeal or abrogate any law and, therefore, it can be safely presumed that the Section 3 of the C P Act does not abrogate Section 5 and Section 8 of the Arbitration Act of 1996. But inversely, the aforesaid proposition is not correct because the Section 5 as well as Section 8 of the Arbitration Act of 1996 clearly bars/ouster the jurisdiction of “any judicial authority” which includes the Consumer Fora.

Conclusion:

The National Commission following the previous Judgments of the Supreme Court held that the Consumer Forum would continue to have jurisdiction, notwithstanding an Arbitration Clause. It observed as under:

• Reliance was placed on the principle laid down in Kishore Lal Vs. Chairman, Employees’ State Insurance Corporation [(2007) 4 SCC 579], that the jurisdiction of the Consumer Fora should not be curtailed unless there is an express provision prohibiting the Consumer Forum to take up the matter which falls within the jurisdiction of the civil court or any other forum as established under some enactment.
• If two different fora have jurisdiction to entertain the dispute in regard to the same subject, the jurisdiction of the Consumer Forum would not be barred and the power of the Consumer Forum to adjudicate upon the dispute could not be negated.
• In N.K. Modi’s [(1996) 6 SCC 385] and Skypay Courier’s [(2000) 5 SCC 294] case, the Hon’ble Supreme Court in the context of the provisions of the C.P. Act and in particular Section 3 of the Act and Arbitration Act of 1940 has held that the Consumer Fora created under the C.P. Act are at liberty to proceed with the matter in accordance with the provisions of the Act rather than relegating the parties to the Arbitration proceedings pursuant to an Agreement entered into between the parties.
• In Madhusudhan Reddy’s case [(2012 ) 2 SCC 506], it was held that the complaint filed under the C.P. Act would be maintainable and the consumer cannot be denied the relief by invoking the jurisdiction of Section 8 of the Arbitration Act of 1986.
• Section 3 of the C.P. Act makes it clear that the remedy available in that Act is in addition and not in derogation of the provisions of any other law for the time being in force and thus this judgment was held as binding precedent.
• By establishing the Consumer Disputes Redressal Forums, the Legislature has provided special remedy for the redressal of the grievances of “small consumers” who buy the goods or avail of services for their personal purpose.
• Remedy provided under the C.P. Act is a special remedy with the objective of redressal of the grievances of the affected consumers in an expeditious and non-expensive manner. If the small consumers are relegated to the Alternative Dispute Resolution (ADR) mechanism of arbitration, the remedy provided under the C.P. Act would become illusionary
• Most of the complainants /consumers sign the agreement containing an arbitration clause under duress (instance is taken from Builder’s agreement) because the other party which is in a dominating position insists for it, else they would not enter into builders’ agreement. In most of the cases, the builder who is in a dominating position reserves the right to appoint Sole Arbitrator to himself and the Arbitrator so appointed in most of the cases is the officer of the builder from whom it is almost impossible to expect an impartial and fair award. If the builder is allowed to have resort to the arbitration agreement contained in the Builder’s agreement, going by the prevalent practice the consumer would never be able to redress his genuine grievance. Legislature by providing the additional remedy under Section 3 of the C.P. Act has tried to take care of such a situation to redress the grievances of the small consumers.